I get a lot of questions about data centers. So, here is a brief history of how we got here, the fight over data centers at the legislature last session, and where we go from here.

Let’s start at the beginning.

For the last fifteen years, most states have competed to attract data center construction. The most famous is Virginia, which exempted data centers from sales tax in 2010, setting off a boom that turned Northern Virginia into the densest data center corridor in the world. Today, 38 states authorize tax incentives for new data center development, usually tied to minimum investment and job-creation thresholds. The sales tax exemption is the biggest draw because the equipment inside data centers is so expensive.

Colorado stood on the sidelines during this era of state policymaking; we’re one of the few states with no incentives. As a result, most of our roughly 60 data centers are small to mid-sized “colocation” facilities, not the massive “hyperscale” campuses built by or for the biggest cloud and AI companies. The notable exception is the QTS facility now under construction in Aurora, which will compete with the Evraz steel mill in Pueblo for the title of Xcel’s single largest customer in Colorado. About ten data center companies are headquartered here, but they’ve mostly built their projects in other states.

Data center proponents point to the blue-collar jobs these projects create and the property taxes they generate. In Loudoun County, Virginia, for instance, the revenue generated by data centers enabled the county to cut its property tax rate every year for a decade.

Over the last two years, however, concern has grown about the downsides. Data centers can drive up utility costs if they aren’t properly regulated. Depending on how they’re cooled, they can strain our water systems. And their demand can outpace clean energy, pushing utilities to keep coal plants open or bring new gas online. These impacts often fall hardest on our most vulnerable communities; in Globeville and Elyria-Swansea, residents raised the alarm over a new data center’s water and power use, causing Denver City Council to pause new data center approvals this spring.

These concerns have led to a sharp reversal in state policy towards data centers. States that spent the last decade competing to attract them are now moving the other way, walking back the incentives they offered or attaching guardrails. At least 28 states that offer incentives have moved to curb or amend them; Illinois, Arizona, and Ohio paused their programs outright. New York Governor Kathy Hochul issued the nation’s first statewide moratorium on large data centers this summer. In Texas, Governor Greg Abbott—who a year earlier called his state the “epicenter” of AI development—froze new data center approvals, ordering regulators to audit every project’s water and power use before it can connect to the grid.

Into this morass steps the Colorado General Assembly.

Two competing pieces of legislation to regulate data centers came forward last legislative session. The first, House Bill 1030, was backed by labor unions and the data center industry. It mirrored the first wave of data center legislation, offering a 20-year sales tax exemption in exchange for a large minimum investment and wage and labor standards. It was opposed by environmental groups, who argued that it lacked necessary guardrails for water and power usage.

The other bill, Senate Bill 102, would have required data centers to meet a 100% renewable energy standard and hold ratepayers harmless for grid upgrades. The bill was backed by several environmental groups. Labor unions opposed it because it offered no incentives to attract the large data centers that create union jobs. Without those incentives, they argued, large data centers would simply continue to be built in places like Wyoming, where the grid runs on far dirtier power.

Labor unions, environmental groups, and the state legislators behind both bills negotiated throughout session to find a compromise. In the end, no deal was reached, and both bills died unceremoniously in committee. From what I understand, the compromise discussed would have included some version of the guardrails in Senate Bill 102 coupled with some version of the incentives and wage and labor standards from House Bill 1030. With the issue unresolved, data centers will continue to be a hot topic of conversation at the legislature next year.

So where do we go from here?

Some of the work is already underway. The Public Utilities Commission is currently considering a “large-load tariff” that would require large customers like data centers to pay for the transmission and generation required to serve them. If it goes through, it’ll address one of my biggest concerns: making sure the costs of data centers don’t land on everyone else’s utility bills.

But there’s a lot more work the legislature needs to do. Any data center bill I could support next session needs to include strong guardrails to ensure that data centers: 1) support our transition to clean energy; 2) are built with strong labor standards and good union jobs; 3) don’t unduly strain our water supply; and 4) are built in communities that actually want them.

That’s where I land, but I want to hear from you. What do you think the state legislature should do about data centers?

Editor’s Note: This article is from Matt Ball’s August 26th newsletter. Matt is our State Senator, District 31.